• Industrial Packaging (NA Corrugated Packaging & Containerboard export): Q1 US box shipments increased by 3% y/y (March: +4.7%). They saw strong export containerboard demand in Q1 and expect this to continue in Q2 across all regions; however, expect demand in Mid-East & Africa to moderate somewhat as citrus season tapers. Due to significant dislocations in supply chains, they expect recovered paper costs to be a massive headwind in Q2. E-commerce exploded, with growth well in excess of the usual solid double-digit growth.   
  • Going into 2020, global containerboard inventories have been much tighter and seen strong pull from banana and citrus: Their US Bogalusa mill (840ktpa) had one PM down on 3 March, but fully operational in April. Their Rome mill remains down (since 14 March) with both PMs stopping production (880kpta). They are aiming to restart in June but expect to lose 25% (220kt) of production this year.
  • Concerns over OCC as recovery supply remains dependent on retail (biggest) and restaurants: 30% of US OCC is sourced from imported boxes. IP is expecting an USD 55m (7% of Q1 EBITDA) impact from recovered paper in Q2. Recovered paper shortages to support demand for pulp in the ST.
  • UWF ST outlook is dire due to the impact of work-from-home and the decline in print advertising: They are expecting drops of 40% in North America and Latin America, 30% in Europe and 50% in Russia. In their view, it is too early to tell if the decline is structural or if it will rebound. UWF comprises 17% of their business and their UWF strategy remains unchanged, convert if possible, otherwise close capacity to meet the reality of the structural decline.
  • Ilim JV (Russia) saw record production in March, with limited impact from COVID: Volumes stable (flat), with lower pricing offset by improved operations and lower input costs. 60-70% of revenue are USD based, with most costs Rouble based. Business is planning pull back in CapEx, but unlikely to see any significant delays in their USD 1bn kraftliner expansion project.
  • Liquidity strong (USD 3.8bn) and healthy maturity profile: No changes made to capital allocation. They continue to target net debt/EBITDA of 2.5-2.8x. CapEx was pulled back by 30% to USD 0.6bn for FY 20e. Q1 dividend paid; however, share repurchase program was suspended.
  • FY guidance withdrawn: Industrial packaging demand is expected to moderate in the ST (US box demand was 2% in April), with pricing weaker (but higher for exports) and cost pressure from recovered fibre. Printing Papers to be adversely impacted by large drop off in demand due to COVID, leading to higher absorption of fixed costs. Pricing and costs are expected to remain stable.

Download Report